Sir Yue Kong Pao v. Allen Pat-yung Waung

CACV000066/1982

BETWEN

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Coram: Sir Alan Huggins, V.-P., McMullin, V.-P., and Li, J.A.

Date: 4 August 1982

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JUDGMENT

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Sir Alan Huggins, V.-P.

1. The Plaintiff's claim lies in contract. Much of the argument in the court below, and consequently of the judgment appealed from, was taken up with a discussion of the rules of pleading. Nothing seems to me to turn upon this aspect of the matter and I say only that I am not persuaded that the distinction drawn by Lord Justice Scott in Bruce v. Odhams Press Ltd. 1936 1 All E.R. 287 and Pinson v. Lloyds Bank Ltd. 1941 2 K.B. 72 between facts which must be pleaded as constituting an essential part of the cause of action and those which must be pleaded in order to give proper particulars of the plaintiff's case involves a "hawkish view" of the rules of pleading and of the enforcement of those rules: it is a valid and, indeed, necessary distinction.

2. However, the question we have to decide is whether the appellant Defendant is right when he contends that the Plaintiff's claim is hopeless and ought for that reason to be struck out ab initio. It is argued that is is hopeless because on the Plaintiff's own pleading there never was a contract, i.e. a legally enforceable agreement. It is not in dispute that the parties purported to enter into an agreement and that for many years they appeared to act on the basis that that agreement was a valid contract. It was an agreement which prima facie was intended to confer upon each party legal rights and duties, although the Defendant's submission involves the contention that all the payments made by him to the Plaintiff in apparent pursuance of the agreement were made as a matter of grace rather than as a legal obligation. This necessarily follows from the fact that the Defendant argues that the agreement lacked one necessary ingredient of a binding contract, namely certainty 

3. The statement of Claim as it now stands was filed pursuant to an order of a Master striking out the original Statement of Claim. The primary facts now pleaded do not substantially differ from those in the former Statement of Claim, but, whereas previously it was said that those facts established a partnership between the Plaintiff and the Defendant, it is now said that they establish a relationship of a different kind, to wit a yinming hehuo.

4. The fact that the present pleading is what Mr. Macpherson describes as a recasting of the statement of Claim which was struck out does not appear to me of more than peripheral relevance: it calls for us to be on our guard against allowing the Plaintiff to frighten us with a phantom cause of action which has already been exorcised by the Master. However, if the pleader has now succeeded, by blowing on the dry bones of the original Statement of Claim, in clothing them with flesh and inspiring them with the spirit of life, we cannot ignore the miracle.

5. The Plaintiff alleges that the parties entered into a yinming hehuo. If a yinming hehuo could be shown to constitute a relationship with set rights and obligations on both sides, then by agreeing to establish that relationship the parties would have incorporated those set terms and no uncertainty would exist. What the Defendant says is that on the Plaintiff's own pleading there are no set rights and obligations but that the terms may vary within limits. This argument is based on para. 12(ii) which reads:

"As both the Plaintiff and the Defendant at the material time well knew and understood, there was among Chinese men of business a common usage of long standing whereby one or more investors (commonly referred to as yinming hehuoren ) （隱名合夥人） may invest capital in an enterprise operated by one or more proprietors (commonly referred to as chuming yingyeren ) (出名營業人） on terms such as those set out in Paragraph 11 hereof or similar terms, such enterprises being commonly referred to as yinming hehuo. （隱名合夥）."

The Defendant emphasizes the phrases "such as" and "or similar terms". Thus, it is said in effect that there is no real certainty and that it would not be open to the Plaintiff to adduce evidence which was in conflict with his pleading.

6. Mr. Scott approaches the matter somewhat differently. He starts with the assertions that these parties clearly intended to enter into a contractual relationship and that for 20 years they proceeded upon the basis that such a relationship existed. In any event the Plaintiff has pleaded an intention that legal obligations should be created and for the purposes of this application that intention should be assumed. Upon that foundation he argues that the courts will do their utmost to give effect to this contractual intention rather than to hold that the agreement was void for uncertainty. More particularly, in the case of a contract which is not wholly executory the court should, where appropriate, imply terms to avoid uncertainty: see Tito v. Wadell (No. 2) 1977 Ch. 108, 314F.

7. Applying those principles to the case at Bar Mr. Scott submits that, as the parties were expressly entering into the relationship know as a yinming hehuo, the terms set out in para. 11 of the Statement of Claim were terms which were necessarily to be implied as incidental to that relationship. He appeared to agree that his argument could also be put in this way - that every yinming hehuo was necessarily governed by the terms set out in para. 11 because every such relationship includes all those terms or that this yinming hehuo included them because by its nature it included some of those terms and the rest must necessarily be implied in order to give the contract business efficacy. The alternative form of the argument seems to be necessary because I understood him also to agree that parties could, by express agreement, introduce different terms into the relationship of yinming hehuo, but he said that here there was no express variation and that even where there was an express variation the terms would still be "similar" to those in para. 11, and accordingly para. 12(ii) of the Statement of Claim did not in truth introduce an uncertainty affecting the contract in the present case.

8. I accept that one has to consider the circumstances as they existed when the agreement is alleged to have been made - in 1950 - when deciding whether a legally binding agreement was concluded. If there was then no contract, the fact that the parties conducted themselves as though there was a contract would not alter that fact: only where a contract has been established can the conduct of the parties thereafter be relevant - in applying the doctrine of contemporanea expositio. Their conduct here was in any event equivocal.

9. As already indicated, I do not think Mr. Macpherson suggested that the parties did not intend to enter into legally enforceable obligations and it would in any event be impossible for us at this stage to decide that no contract was intended. The issue relates solely to the certainty of the rights and obligations intended.  Again, in my view it is impossible for us to hold that, plainly and obviously, the Plaintiff has no case. He may face considerable obstacles, because the evidence at the trial may raise doubts as to the immutability of the relationship of yinming hehuo, but he ought not to be driven away from the judgment seat on the ground that, in the event, it may appear that the Defendant has been vexed with complicated and unjustified litigation. I am not persuaded that the Plaintiff is in truth necessarily asking the court to write the contract for him.

10. As an alternative to the striking out of the entire Statement of Claim the Defendant seeks the striking out of the following particular parts of it - sub-paras. (i), (iv), (v) and (vi) of para. 12 and para. 21 - as being embarassing : he does not wish to be forced to plead to them. As I understand it, para. 12(i) does not is reality add anything which is not implicit in the allegation of the relationship of yinming hehuo : that is a relationship of trust and confidence if it is what the Plaintiff alleges it to be. Accordingly I would regard the sub-paragraph as merely tautologous and not sufficiently objectionable to justify striking out. Sub-paragraphs (iv), (v) and (vi) likewise, add nothing material. Mr. Scott says they are intended to make clear the nature of the transaction which is relied upon. It is questionable whether they succeed in doing that. Mr. Macpherson objects with some justification that they raise matters of translation which are not "material facts" proper to be pleaded. I agree that they may fairly be regarded as an embarassment and I would order that they be struck out. Paragraph 21 seeks to identify other persons who are alleged to have had yinming hehuo with the Defendant in the spring or summer of 1955 but does so by alleging that they were present at a meeting at the Defendant's office. Once more I do not think this is relevant to the issues which will have to be decided by the trial judge, although it will doubtless become relevant if and when an order is made for accounts to be taken, for the sums to which the Plaintiff would be entitled - if his other allegations be true - would depend in part upon the number of other persons having simi1ar rights against the Defendant. I would therefore strike out para. 21 also.

11. Save to the extent I have indicated I would dismiss the appeal. However, as the other members of the court take a more lenient view of the paragraphs I would strike out, the appeal will stand dismissed in its entirety.

McMullin, V.-P.

12. In summarizing his argument Mr. Macpherson puts it that the agreement pleaded in paragraphs 7, 8 and 9 of the Statement of Claim, resting as it does on the significance of the term "hehuo", is too uncertain to be enforced because the meaning ascribed to it in paragraph 11 of the Statement of Claim is itself uncertain. This is so, he says, because although the terms pleaded therein look sound, they are themselves undone by what appears in paragraph 12.

13. Paragraph 12(ii) is as follows :-

"As both the Plaintiff and the Defendant at the material time well knew and understood, there was among Chinese men of business a common usage of long standing whereby one or more investors (commonly referred to as yinming hehuoren )  （隱名合夥人）may invest capital in an enterprise operated by one or more proprietors (commonly referred to as chuming yingyeren ) （出名營業人）on terms such as those set out in Paragraph 11 hereof or similar terms, such enterprises being commonly referred to as yinming hehuo. （隱名合夥）."

Just as the bedrock of the Plaintiff's claim is the term "hehuo" that of the Defendant's reply to it is supplied by the words "on terms such as those set out in Paragraph 11 hereof or similar terms".

14. To my mind this implies only that there may be some elasticity in the term "hehuo" which would accommodate variations from the terms pleaded in paragraph 11 as the basic terms understood by both parties to underlie the arrangement which they entered into in 1950. I do not read paragraph 12(ii) as meaning that the terms particularized in paragraph 11 are specimen terms only.

15. It is very important that, when the dispute arose, this was, as pleaded, in part an executed and not a wholly executory arrangement. I think it is quite legitimate to scan the behaviour of the parties after 1950 not in order to determine what they gradually came to recognise as the limits of their mutual obligations and rights but in order to illuminate what must have been in their minds consequent upon the use of the term "hehuo" in 1950.

16. Clearly the $3,000 was not given by way of loan or gift; it was not intended for the purchase of shares in an existing company; it was not a reward for services rendered; it was not by way of deposit or pledge nor yet was it a wager. It was patently intended to secure an enforceable claim upon an enterprise expected to yield profits to both parties. Whether that expectation was at the outset mutually understood to involve the consequences detailed in paragraph 11 is a matter for evidence. At this stage it would, in my view, be wholly unreasonable not to regard the subsequent behaviour of the parties - in particular that of the defendant - (as disclosed in paragraphs 18 to 46 of the Statement of Claim) as affording some evidence of an agreement in the terms pleaded in the earlier part of that statement.

17. I do not propose to refer to the authorities which were canvassed before us but I am in respectful agreement with what has been said of them in the judgments of the other members of this Court which I have had the advantage of considering in the interim since the case was adjourned for judgment.

18. For my own part I am content to echo the words of Hunter, J., in dismissing the application to strike out when he pointed out that he was not trying the action but only the pleading. I follow him in finding the pleading satisfactory to the extent that a viable cause of action is disclosed therein. The reality and worth of that cause can only be determined at a later stage.

19. As to the contention that certain individual portions of the pleadings should in any event be struck out, I am in agreement with my brother Li. This relief is sought only at this late stage and I am bound to say that whether surplussage or not the matters referred to are, in my view, not of such moment as to require their excision.

Li, J.A.:

20. This is an appeal from the decision of Hunter, J. who dismissed the appellant's (defendant's) application by summons to strike out the writ of summons and the statement of claim filed. on the 21st of December, 1981 by the respondent (plaintiff) for disclosing no or no reasonable cause of action etc. under Order 18, Rule 19. There is no necessity to recap the history of the case or the arguments in support of the appellant's application in the court below.  Such arguments and course of events had been clearly set out in, if I may say so, the succinct judgment delivered by the learned judge.  Nor is it necessary to repeat the grounds of appeal in detail because learned counsel for the appellant focused his attack on the  judgment on one point and one point alone.

21. The issue is narrowed down to the point that the judge was wrong in holding that it has not been made out that the statement of claim does not disclose a reasonable cause of action since the agreement pleaded by the respondent is founded upon certain implied terms. For this reason, it is necessary to examine what the respondent has pleaded.

22. Basically the respondent pleads that in 1950, he was invited by the appellant to participate in the appellant's entrepreneurial business by contributing a sum of money to the capital. The respondent accepted and handed over to the appellant $3,000. In the course of their conversation, the appellant used the term (hehuo) and said: "If you can get money you can join and after you joined we will both get benefits from it." The respondent then alleges as follows:

"The defendant was thereby inviting the plaintiff to participate as an investor on the basis pleaded in paragraphs 9, 10, 11 and 12 hereunder and the expression 'hehuo' in the context was in effect a reference to a form of joint business enterprise commonly known as 'yinming hehuo' as further pleaded in the said paragraph 12 below."

He further pleads that by what was said and the use of the term 'hehuo' in the formation of that agreement in 1950, certain necessary terms were implied as set out in paragraph 11 of the statement of claim.

The paragraph 11 of the statement of claim reads as follows:

"The 1950 Agreement was made upon the following implied terms:-

Paragraph 12 of the said statement of claim provides as follows:

"In support of the allegation made in the foregoing paragraph hereof that the said terms are to be implied in the 1950 Agreement the Plaintiff will rely on the following facts and matters: -

23. Counsel for the appellant concedes properly, if I may say so, that the court will not exercise the power to strike out summarily an action unless it is plain and obvious that the pleading discloses a hopeless claim which cannot even get off the ground. He contends, however, that by themselves paragraphs 7, 8 and 9 of the statement of claim do not disclose a binding contract between the parties. This is so even if one reads the pleadings in paragraphs 11 and 12(ii) as set out aforesaid because the so-called implied terms are so vague and uncertain so much so that in paragraph 12(ii) the respondent had to employ the phrase "or terms such as those set out in paragraph 11 hereof or similar terms'". He says that such vague and uncertain pleadings simply do not label the appellant with any legal obligation whatsoever. He argues that all the judge was satisfied at was that there had been offer and acceptance. The judge himself could not spell out the terms of the so-called agreement with certainty and clarity. For this reason, the learned judge was wrong in concluding that the statement of claim did disclose an arguable cause of action.

24. Counsel for the respondent contends, on the other hand, that this is an action for breach of contract. There was an offer by the appellant to participate in a joint enterprise in the appellant's business in the form of a Chinese partnership called "hehuo". There was an acceptance and there was a payment to the appellant of capital money. The parties had acted on such agreement. The appellant had made payments to the respondent from time to time since 1950. He called the respondent as well as his other investors to a meeting in the mid-fifties with the view of diversifying his business to shipping business. Further, there was another meeting. A valuation was made as to the assets of various investors including the respondent's share of capital assets, in 1963, to a certain sum. In 1970, the appellant gave notice to determine this "hehuo" association. Thus, counsel contends that the only proper approach by the court is to apply the implied terms which are the basic implications of such an agreed association called "hehuo" as set up in paragraph 11 of the statement of claim. Such implied terms must have been known to the parties at the time of the formation of the agreement in 1950 and. must be implied to give business efficacy to this transaction.

25. A series of authorities have been cited by both sides in support of their respective arguments. Some of them provide useful guidelines in principle but none of them are really directly binding authorities.  Since no two sets of pleadings are identical, the nearest to the case is that of Liverpool City Council v. Irwin, 1977 AC 239. Even that case was one concerning the question of legal obligations of the City Council towards a resident despite the lack of any tenancy agreement or any covenant expressed in terms of a binding contract on the part of the Council to provide basic maintenance. The Law Lords decided that there should be implied terms of necessity for the Council to carry out certain basic maintenance and repairs. However, in that case, even if there was no tenancy agreement and no written covenant to bind the City Council and therefore the parties had no privity of contract, yet the parties had at least privity of estate once Irwin was let into possession. The fact remained that the City Council was the owner of a tall-rise block of flats and Irwin was the tenant. For this reason, certain fundamental rights and duties must exist between the Council and Irwin.

26. It is in this light that I must view the 1950 agreement, alleged in the statement of claim. As the learned trial judge said quite properly that he was trying the pleadings and not the action.

27. The pleadings allege that the parties formed an agreement in 1950 to participate in a "hehuo" association in terms well-kown to the parties as Chinese businessmen. Payment of $3,000 had been made. Pausing at this stage, I may observe that it has not been alleged that the payment of the $3,000 was by way of a loan, a deposit or a gift. It was for the purpose of participating in the appellant's business for the joint benefits of the appellant and the respondent. The parties were silent then apart from using the term "hehuo" which was well-known, according to the pleadings, to both parties.

28. What then were the rights and obligations of the parties: Once the aforesaid facts had been alleged to have been accepted, the rights of the appellants which should be basic and necessary were:

29. On the other hand, the appellant should be under a duty which is necessarily basic as a recipient of such sum of money. They are:

30. The aforesaid in my opinion were the basic terms of the parties who came to this arrangement in the form of an agreement. Whatever one likes to call that type of agreement, whether as "hehuo", "joint enterprise" or "Chinese partnership", these must be the basic terms implied in that form of transaction. It leaves a bad taste in the mouth to suggest that the appellant received the $3,000 for nothing and without any obligation whatsoever. Here again I hasten to add that this remark is made on the basis that I am trying the pleadings and have to accept them as such. I, by no means, attempt to judge the action whether the respondent as plaintiff can live up to his allegations. That is a matter of evidence. However, I will go so far as to say that even if the appellant had never applied the respondent's contribution to his business, he still has to account for the $3,000. That again is a matter for the defence. It cannot be said that the respondent has not disclosed an agreement with certain basic terms which must be necessarily the outcome of the offer and acceptance.

31. Paragraph 11 spells out those basic terms and some contents in paragraph 11 are merely consequential requirements of such basic and necessary terms. In my opinion, the phrase "or similar terms'' merely intends to cover the area envisaged within the compass of such basic terms.

32. In his judgment, the learned trial judge said at page 16 as follows:

"Thirdly, it seems to me that even if I were pursuaded that this was right, all I could say is that paragraph 11 must go. I cannot, on the other hand strike out the express terms pleaded in paragraphs 7, 8 and 9 in any event. So that one would still be left with almost exactly the same problems arising on the construction of those express terms and the construction of the word 'hehuo' ."

I am of the same opinion. If I may adulterate his clear judgment by spelling out what I suggest he has not said - and I hope I have not misunderstood him - which is that even if paragraph 11 has not been pleaded, the term "hehuo" and the conversation between the parties have been spelt out in paragraph 7. This alone will give rise to the rights and obligations between the parties. Without the pleadings in paragraph 11, the appellant in his capacity as defendant, would have been perfectly entitled to say the least to ask for clarification by way of amendment to the statement of claim or asking for further any better particulars.

33. There was the subject matter of the offer and acceptance, namely for the participation in the appellant's enterpreneurial business. There were the basic rights and discretions conferred upon the appellant. There was the duty on the part of the appellant to apply the sum contributed by the respondent to his business. What was silent on the part of the parties was certain basic duties on the part of the appellant to account for the profits and loss and the return of capital in due course on the determination of such joint enterprise. These are exactly what has been alleged by the respondent in the pleadings that the appellant must do. These are the basic terms in order to give sanction to the agreement business efficacy. After all, rights and obligations between the parties are correlative. Even if the appellant never applied the respondent's contribution to do any business, he still has to account for that sum of money. That again is a matter for the defence. In that event, I will go so far as to say that I am not too sure if the appellant took the course of accepting the money and never applied it to any business at all and in the end only returned the $3,000 to the respondent that might not be a subject matter of an action for breach of contract or deception.

34. That is not the end of the story. The other part of the statement of claim discloses that the appellant did utilize the money in his business. He did declare profits from time to time in the years 1950 and 1960. It is alleged that in the mid-fifties he called his investors to a meeting and discussed whether the appellant might diversify his business into shipping, and that the respondent and other investors agreed. It is also alleged that in 1963, there was another meeting where the capital assets of each investor, including the respondent's, had been evaluated and the respondent's share had been assessed and settled at a certain sum of money, namely the sum of $317,828. In short, the respondent pleads not only part performance on his own side, but that there had been part performance on the part of the appellant as well. Whether the appellant did make payment to the respondent from time to time in the years 1950 and 1960, and whether there had. been a valuation as to the respondent's assets with the appellant is a matter for the defence and a matter of evidence.  Such allegations clearly indicate that the parties by their conduct were acting in accordance with the agreement reached in 1950 with the alleged basic terms.

35. There they were, two hard-headed Chinese businessmen. Money had been contributed for the purposes of business. Returns had been made from time to time. The respondent certainly does not contend that he paid the $3,000 as a matter of charity. Whether the respondent in his defence will say that the various payments alleged to have been made is denied or paid in the form of charity is up to the defence and a matter of evidence.   As I said before, and I shall repeat again, that at the moment, I am not concerned in the least with the evidence or the defence. I have to accept the facts as pleaded in the statement of claim.

36. I am of the same opinion as the learned judge in the court below that such allegations disclose a reasonable cause of action or at least an arguable cause of action. It certainly is not a plain and obviously hopeless case. For these reasons, I would dismiss the appeal and with costs.

37. As to striking out certain paragraphs in the statement of claim such was never asked for in the summons dated 16th January, 1982. Nor do these affect the main cause of action or in anyway cause embarrassment to the appellant. I am inclined not to have them struck out.